Understanding the Guns-and-Butter Curve & How It Works

What is the Guns-and-Butter Curve?

The guns-and-butter curve is the production possibility curve, which demonstrates opportunity cost. In an economy with two goods, a choice must be made between how much of each good to produce. As an economy produces more guns (military spending), it must reduce its production of butter (food), and vice versa.

Key Takeaways

• The guns-and-butter curve postulates that you can only gain something if something else is given in return.
• The curve shows that in an economy with two products, you cannot outproduce the curve without increasing productivity.
• A common example of the guns-and-butter curve is the Soviet Union during the Cold War. The Soviet Union focused so much on military might that they fell short in meeting many of the basic needs of their citizens such as access to food, healthcare, and education.

Understanding the Guns-and-Butter Curve

In the chart, the curve represents all possible choices of production for the economy. The dots represent two possible choices of outputs. Every choice has an opportunity cost; you can get more of something only by giving up something else. Also, you’ll notice that the curve is the limit of production. You cannot produce outside the curve without increasing productivity.

Though the curve shows a strict divide between only two options, production for military spending or food, it can also represent spending on military personnel, equipment, and operations versus all nonmilitary spending in an economy. This can include investments in domestic needs such as healthcare, education, utilities, and other services.

Guns-and-Butter Curve as a Tradeoff

The guns-and-butter curve charts the tradeoff that occurs within the limits of production in a given economy. Money spent on the development and manufacture of jet fighters, for example, cannot be invested in critical infrastructure repairs such as the replacement of aging bridges.

If a nation chooses to focus on military buildup, its domestic production needs can only be met through an overall elevation of production or productivity. Such an increase would allow for nonmilitary products to increase even as the military buildup was underway. However, such gains in economic production often mean the size and scope of military production would escalate in turn. Maintaining such elevated production to meet both needs can be taxing on an economy, potentially leading to capital drain in other necessary areas. For example, research and development may see less investment if all priority is given to current production.

The guns-and-butter curve shows the correlations that link government strategy, investment, and production.

Guns-and-Butter and Market Forces

The constraints of the guns-and-butter curve can illustrate the strain put on Cold War-era nations that focused on military buildup while consumer goods suffered in response. Sustained pressure to fulfill military needs for defense was a contributing factor in the dissolution of the former Soviet Union, which experienced shortages of food, houses, and other domestic necessities.

Part of the issue was the effort to keep up with defense spending in the United States. In order for the domestic needs of the citizens to be fully met, the Soviet Union needed to escalate its overall production and productivity. One issue faced by the Soviet Union is that the decisions for production quotas were centralized, whereas many parts of the U.S. economy were primarily driven by market forces rather than government planning. While market forces can be capricious, they are far faster at giving signals and allocating capital than a bureaucratic framework.

The innovations and productivity growth in the wider U.S. economy during the Cold War-era generated the wealth and revenue for the U.S. government to undertake a massive military spending program. Without growth, however, the guns-and-butter curve represents a barrier that curtails the military ambitions of most nations via the threat of civil unrest when people don’t have enough to eat. There are exceptions to the idea that a military-focused government would eventually be overthrown. The ruling party of North Korea, for example, continued to spend large amounts on weaponry and its standing military even during a period of severe famine and it continues to do so today despite widespread issues with malnutrition.

The innovations and productivity growth in the wider U.S. economy during the Cold War-era generated the wealth and revenue for the U.S. government to undertake a massive military spending program. Without growth, however, the guns-and-butter curve represents a barrier that curtails the military ambitions of most nations via the threat of civil unrest when people don’t have enough to eat. There are exceptions to the idea that a military-focused government would eventually be overthrown. The ruling party of North Korea, for example, continued to spend large amounts on weaponry and its standing military even during a period of severe famine and it continues to do so today despite widespread issues with malnutrition.